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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 14, 1999
DOWNEY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0633413
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
COMMISSION FILE NUMBER: 1-13578
3501 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949)854-0300
2
<PAGE>
ITEM 5. OTHER EVENTS.
See attached Press Release dated July 14, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits
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99.1 Press Release dated July 14, 1999.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DOWNEY FINANCIAL CORP.
(Registrant)
Date: July 14, 1999 By /s/ Daniel D. Rosenthal
---------------------------------
Daniel D. Rosenthal
President and Chief Executive Officer
4
<PAGE>
EXHIBIT INDEX
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99.1 Press Release dated July 14, 1999.
5
<PAGE>
EXHIBIT 99.1
Press Release dated July 14, 1999
For further information contact:
Thomas E. Prince
Chief Financial Officer
(949)509-4440
DOWNEY ANNOUNCES SECOND QUARTER EARNINGS AND FIFTH
CONSECUTIVE QUARTER OF RECORD LOAN ORIGINATIONS
Newport Beach, California - July 14, 1999 - Downey Financial Corp.
(NYSE:PCX: DSL) today reported net income for the second quarter of 1999 of
$15.1 million or $0.53 per share on a diluted basis. This compares to net income
in the second quarter of 1998 of $15.0 million or $0.53 per share on a diluted
basis.
Net income in the year-ago quarter benefited from the settlement of loan
and real estate investment obligations of a former joint venture partner. That
settlement added $1.8 million to net income in the second quarter of 1998.
Excluding the settlement, net income would have increased between second
quarters by $1.9 million or 14.4%, primarily reflecting a $1.8 million or 15.1%
increase in net income from banking operations.
For the first six months of 1999, net income totaled $27.4 million or $0.97
per share on a diluted basis, down from $32.6 million or $1.15 per share in the
year-ago period. The decline primarily reflects two factors.
. First, year-ago net income benefited by $4.7 million from the
settlement.
. Second, the remaining net income attributable to real estate
investment activities declined $3.0 million due to the current period
having a lower level of gains from sales of real estate investments.
Excluding those two factors, net income would have increased by $2.6
million or 11.0% for the first six months. This adjusted increase was generated
by Downey's banking operations.
Daniel D. Rosenthal, President and Chief Executive Officer, commented, "For
the fifth consecutive quarter, Downey had record single family loan
originations. In addition, a higher proportion of our originations were for
portfolio rather than for sale, thereby generating strong asset growth. Over the
past three months, our assets have increased by $737 million or 11%. We are well
on our way to exceeding our record 1998 loan originations."
Net interest income totaled $51.2 million in the second quarter of 1999, up
$8.0 million or 18.5% from the same period last year. The improvement between
second quarters reflected increases in both average earning assets and the
effective interest rate spread. Average earning assets increased by $982 million
or 17.5% between second quarters to $6.6 billion. The effective interest rate
spread of 3.11% in the current quarter was up from the year-ago quarter level of
3.08%. For the first six months of 1999, net interest income totaled $100.2
million, up $14.3 million or 16.7% from a year ago.
Provision for loan losses was $2.8 million in the current quarter, up from
$1.5 million in the year-ago quarter. This increase reflects the growth in the
loan portfolio during the quarter, whereas during the year-ago quarter the loan
portfolio declined. The allowance for loan losses was $34 million at June 30,
1999, up from $32 million at both year-end 1998 and June 30, 1998. Net
charge-offs totaled $1.0 million in the 1999 second quarter, down from $1.5
million a year ago. For the first six months of 1999, provision for loan losses
was $5.2 million and net charge-offs were $2.4 million. This compares to a
provision for loan losses of $1.7 million and net charge-offs of $2.1 million in
the year-ago period, which benefited by a $1.4 million recovery from the
settlement.
Total other income was $13.3 million in the second quarter of 1999, up $1.3
million or 11.0% from a year ago. All categories of other income were above a
year ago except for income from real estate held for investment. Income from
real estate held for investment declined by $2.2 million, of which $1.7 million
was attributable to the settlement. Net gains on sales of loans increased $1.6
million between second quarters due to a higher volume of loans being sold, and
loan and deposit related fees increased $1.2 million. For the first six months
of 1999, total other income was $24.6 million, down $2.3 million from a year ago
of which $5.3 million was attributable to the settlement.
Operating expense totaled $35.5 million in the current quarter, compared to
$27.3 million in the second quarter of 1998. The increase was primarily due to
an increase in general and administrative costs. General and administrative
costs increased $8.0 million or 29.5% due to significantly higher lending
volumes, branch expansion and expense related to Year 2000 compliance efforts.
In addition, the year-ago quarter benefited from a $1.3 million reduction to
professional fees due to the settlement. For the first six months of 1999,
operating expenses totaled $72.0 million, up $18.1 million from the same period
of 1998, of which $1.6 million was attributable to the settlement.
At June 30, 1999, assets totaled $7.3 billion, up $1.5 billion or 25.7%
from a year ago. Single family loan originations totaled a record $1.677 billion
in the second quarter of 1999, up 84% from the $909 million originated in the
second quarter of 1998. Of the current quarter total, $631 million represented
originations of loans for sale and $312 million represented originations for
portfolio of subprime credits as part of Downey's strategy to enhance the
portfolio's net yield. In addition to single family loans, $136 million of other
loans were originated in the quarter, including $61 million of automobile loans
and $54 million of construction and land loans.
At June 30, 1999, deposits totaled $5.5 billion, up 5.8% from a year ago
and $433 million or 8.6% above year-end 1998. During the quarter, four new
in-store branches were opened, bringing total branches at quarter end to 99, of
which 37 are in-store.
Non-performing assets were virtually unchanged during the quarter, totaling
$30 million or 0.41% of total assets.
At June 30, 1999, Downey Financial Corp.'s primary subsidiary, Downey
Savings and Loan Association, F.A., had core and tangible capital ratios of
6.04% and a risk-based capital ratio of 11.48%. These capital levels are well
above the "well capitalized" standards of 5% and 10%, respectively, as defined
by the regulators.
Certain statements in this release may constitute "forward looking
statements" under the Private Litigation Reform Act of 1995, which involve risk
and uncertainties. Downey's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, economic conditions,
competition in the geographic and business areas in which Downey conducts its
operations, fluctuations in interest rates, credit quality and government
regulation.
For further information contact: Thomas E. Prince, Executive Vice President
and Chief Financial Officer at (949)509-4440.
<TABLE>
Downey Financial Corp. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
June 30, December 31, June 30,
(Dollars in Thousands, Except Per Share Data) 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash .................................................................... $ 56,936 $ 58,510 $ 47,744
Federal funds ........................................................... 3,900 33,751 19,001
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents ........................................... 60,836 92,261 66,745
U.S. Treasury securities and agency obligations available for sale,
at fair value ....................................................... 134,091 116,061 125,019
Municipal securities being held to maturity, at amortized cost (estimated
market value of $6,845 at June 30, 1999, $6,745 at December 31, 1998,
and $6,865 at June 30, 1998) ........................................ 6,864 6,764 6,885
Mortgage loans purchased under resale agreements ........................ -- -- 50,000
Loans held for sale, at the lower of cost or market ..................... 360,052 447,382 212,164
Mortgage-backed securities available for sale, at fair value ............ 25,783 32,146 42,246
Loans receivable held for investment .................................... 6,432,294 5,308,837 5,073,881
Investments in real estate and joint ventures ........................... 57,460 49,447 41,880
Real estate acquired in settlement of loans ............................. 4,015 4,475 7,576
Premises and equipment .................................................. 105,957 103,979 101,809
Federal Home Loan Bank stock, at cost ................................... 64,943 49,430 48,010
Other assets ............................................................ 79,105 59,637 55,887
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$7,331,400 $6,270,419 $5,832,102
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ................................................................ $5,472,924 $5,039,733 $5,171,376
Federal Home Loan Bank advances ......................................... 1,298,438 695,012 123,347
Commercial paper ........................................................ -- -- 19,982
Other borrowings ........................................................ 8,794 8,708 12,256
Accounts payable and accrued liabilities ................................ 40,728 40,989 39,567
Deferred income taxes ................................................... 8,383 5,411 6,612
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Total liabilities ................................................... 6,829,267 5,789,853 5,373,140
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STOCKHOLDERS' EQUITY:
Preferred stock, par value of $0.01 per share; authorized 5,000,000
shares; none issued ................................................. -- -- --
Common stock, par value of $0.01 per share; authorized 50,000,000 shares;
outstanding 28,148,409 shares at June 30, 1999, 28,131,776 shares at
December 31, 1998, and 28,104,618 shares at June 30, 1998 ........... 281 281 281
Additional paid-in capital .............................................. 92,385 92,166 91,814
Accumulated other comprehensive income (loss)- unrealized gains (losses)
on securities available for sale .................................... (521) 753 420
Retained earnings ....................................................... 409,988 387,366 366,447
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Total stockholders' equity .......................................... 502,133 480,566 458,962
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$7,331,400 $6,270,419 $5,832,102
====================================================================================================================
</TABLE>
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
(Dollars in Thousands, Except Per Share Data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................................................... $ 118,818 $ 105,583 $ 229,549 $ 210,928
U.S. Treasury securities and agency obligations ..................... 1,798 1,846 3,415 3,675
Mortgage-backed securities .......................................... 423 738 887 1,546
Other investments ................................................... 1,170 1,630 2,252 3,371
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Total interest income ............................................. 122,209 109,797 236,103 219,520
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INTEREST EXPENSE:
Deposits ............................................................ 58,084 62,999 113,573 124,537
Borrowings .......................................................... 12,928 3,608 22,377 9,167
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Total interest expense ............................................ 71,012 66,607 135,950 133,704
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NET INTEREST INCOME ................................................. 51,197 43,190 100,153 85,816
PROVISION FOR LOAN LOSSES ........................................... 2,798 1,462 5,179 1,734
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Net interest income after provision for loan losses ............... 48,399 41,728 94,974 84,082
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OTHER INCOME, NET:
Loan and deposit related fees ....................................... 4,904 3,727 9,352 6,896
Real estate and joint ventures held for investment, net:
Net gains on sales of wholly owned real estate .................... 200 70 200 70
Reduction of losses on real estate and joint ventures ............. 265 2,221 212 4,943
Operations, net ................................................... 2,304 2,712 3,522 9,505
Secondary marketing activities:
Loan servicing fees ............................................... 292 139 866 289
Net gains on sales of loans and mortgage-backed securities ........ 4,058 2,414 8,045 3,286
Net gains on sales of investment securities ......................... 191 -- 288 68
Other ............................................................... 1,045 666 2,116 1,818
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Total other income, net ........................................... 13,259 11,949 24,601 26,875
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OPERATING EXPENSE:
Salaries and related costs .......................................... 21,251 15,609 42,062 30,245
Premises and equipment costs ........................................ 5,068 3,908 9,803 7,790
Advertising expense ................................................. 2,571 1,552 4,770 3,135
Professional fees ................................................... 471 (29) 1,011 1,357
SAIF insurance premiums and regulatory assessments .................. 942 955 1,931 1,905
Other general and administrative expense ............................ 4,979 5,248 11,954 9,021
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Total general and administrative expense ......................... 35,282 27,243 71,531 53,453
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Net operation of real estate acquired in settlement of loans ........ 121 (97) 211 158
Amortization of excess of cost over fair value of net assets acquired 118 134 236 266
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Total operating expense .......................................... 35,521 27,280 71,978 53,877
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INCOME BEFORE INCOME TAXES ............................................. 26,137 26,397 47,597 57,080
Income taxes ........................................................... 11,079 11,409 20,191 24,527
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NET INCOME .......................................................... $ 15,058 $ 14,988 $ 27,406 $ 32,553
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PER SHARE INFORMATION:
BASIC .................................................................. $ 0.53 $ 0.53 $ 0.97 $ 1.16
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DILUTED ................................................................ $ 0.53 $ 0.53 $ 0.97 $ 1.15
=================================================================================================================================
CASH DIVIDENDS PAID .................................................... $ 0.090 $ 0.080 $ 0.170 $ 0.156
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Weighted average diluted shares outstanding ............................ 28,179,984 28,179,643 28,175,126 28,173,832
=================================================================================================================================
</TABLE>
<TABLE>
Downey Financial Corp. and Subsidiaries
Selected Financial Statistics
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
(Dollars in Thousands, Except Per Share Data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans for portfolio:
Originations:
One-to-four unit residential mortgages ...................... $1,045,488 $ 316,292 $1,822,883 $ 511,573
All other ................................................... 136,155 88,013 267,200 181,685
Repayments .................................................... (506,048) (498,516) (940,844) (874,887)
Loans originated for sale ......................................... 631,496 592,931 1,278,282 850,600
Increase (decrease) in loans (including mortgage-backed securities) 715,582 (71,903) 1,029,764 (38,105)
Increase (decrease) in assets ..................................... 737,308 (39,811) 1,060,981 (3,723)
Increase in deposits .............................................. 267,642 62,554 433,191 301,398
Effective interest rate spread .................................... 3.11% 3.08% 3.17% 3.06%
Return on average assets .......................................... 0.88 1.02 0.83 1.11
Return on average equity .......................................... 12.17 13.29 11.20 14.68
Net income by business segment:
Banking (2) ................................................... $ 13,702 $ 12,405 $ 25,731 $ 25,075
Real estate investment (2) .................................... 1,356 2,583 1,675 7,478
----------------------------------------------------
Total net income (2) ........................................ $ 15,058 $ 14,988 $ 27,406 $ 32,553
====================================================
Selected averages:
Loans ......................................................... $6,343,011 $5,316,803 $6,080,936 $5,315,150
Interest-earning assets ....................................... 6,584,711 5,603,020 6,320,008 5,609,207
Total assets .................................................. 6,878,352 5,859,231 6,603,762 5,861,661
Deposits ...................................................... 5,328,264 5,123,428 5,195,208 5,064,239
Equity ........................................................ 495,089 451,144 489,598 443,394
June 30, December 31, June 30,
1999 1998 1998
-------------------------------------
<S> <C> <C> <C>
Non-performing assets:
Non-accrual loans:
One-to-four unit residential ................................ $21,532 $17,546 $20,154
Other ....................................................... 4,281 4,829 20,259
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Total non-accrual loans ................................... 25,813 22,375 40,413
Real estate acquired in settlement of loans, net .............. 4,015 4,475 7,576
Repossessed automobiles ....................................... 256 569 764
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Total non-performing assets ................................. $30,084 $27,419 $48,753
=====================================
Non-performing assets as a percentage of total assets ......... 0.41% 0.44% 0.84%
=====================================
Allowance for losses:
Loans ......................................................... $34,345 $31,517 $31,736
Real estate and joint ventures held for investment ............ 7,389 7,717 9,558
Capital ratios (Bank only):
Tangible capital .............................................. 6.04% 6.83% 7.05%
Core capital .................................................. 6.04 6.83 7.05
Risk-based capital ............................................ 11.48 12.88 13.24
Book value per share .............................................. $ 17.84 $ 17.08 $ 16.33
Number of branches including in-store locations ................... 99 91 90
<FN>
(1) For the first half of 1999 and 1998 loan originations included loans
purchased through correspondent lending relationship of $22.4 million and
$4.1 million, respectively.
(2) Impact of settlement in the second quarter of 1998 with a former joint
venture partner totaled $1,822,000, of which $497,000 was in banking and
$1,325,000 was in real estate investment, bringing the total impact for the
first half of 1998 to $4,747,000, of which $1,901,000 was in banking and
$2,846,000 was in real estate investment.
Note:Certain prior period amounts have been reclassified to conform to the
current period presentation.
</FN>
</TABLE>
